Since January 1, 2024, there has been a lot of discussion about the Corporate Transparency Act. Beginning January 1, 2024, the Corporate Transparency Act (CTA) required certain companies to file Beneficial Ownership Information Reports (BOIRs) with the Financial Crimes Enforcement Network (FinCEN). Last week, the U.S. district court for the Eastern District of Texas found the reporting requirements “likely unconstitutional,” stating that the government could not “provide the [c]ourt with any tenable theory that the CTA” was within Congress’s authority.
The Argument
In Texas Top Cop Shop, Inc. v. Garland, the six plaintiffs argue the CTA is unconstitutional under the 9th, 10th, 1st, and 4th amendments:
– The 9th and 10th amendment challenges relate to the CTA’s violation of rights historically reserved for the states, including the
required reporting of ownership information to the federal government that would otherwise be anonymous under state law.
– The 1st amendment challenge claims “the CTA compels speech and burdens [p]laintiffs’ right of association.”
– Finally, the 4th amendment challenge, relating to the right to privacy, asserts that this right is violated by the CTA’s reporting
requirements.
The Result
Although the court did not ultimately decide whether the CTA is unconstitutional, it did determine that the plaintiff’s claims of unconstitutionality under the 10th amendment had a “substantial likelihood of success,” which allowed the court to grant a preliminary injunction. The court did not have to specifically address the remaining claims of unconstitutionality to order the preliminary injunction, which halts the enforcement of the CTA. This means that the plaintiffs do not currently have to report their beneficial ownership information.
The Effects for Your Company
FinCEN’s response to the injunction clarifies that companies are not required to file BOIRs while the court’s order is in force. Companies may still choose to file BOIRs but will not be penalized for failing to do so. Additionally, FinCEN emphasizes other court cases where other U.S. district courts found the CTA constitutional. Although the final outcome is undecided, this injunction provides immediate relief, at least temporarily, for all reporting entities. We will continue to monitor to see if BOIR filing deadlines will be reinstated.
Sources:
https://www.fincen.gov/boi – see “Alert: Impact of Ongoing Litigation – Deadline Stay – Voluntary Submission Only”
https://www.archives.gov/founding-docs/bill-of-rights-transcript